Interrelation between the climate-related sustainability and the financial reporting disclosures of the European automotive industry

Árpád Tóth,Alex Suta,Ferenc Szauter

doi:10.1007/s10098-021-02108-w

Árpád Tóth, Alex Suta + Show 1 more

Open Access

https://doi.org/10.1007/s10098-021-02108-w

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Abstract

The financial reports of the automotive companies' are measured in a standardized manner; therefore, they are transparent and comparable to each other, but this is not valid for the sustainability reports and it is not possible to compare their sustainability performances. Standard-setting organizations are currently searching for better reporting procedures. This study aims to investigate the connection between sustainability and financial reports for the most dominant European car manufacturers. It reviews the traceability of the sustainability elements back to the financial statements, which helps transparency, comparability, and impact measurement of the disclosed items and issues. This investigation allowed us to additionally review whether these companies are targeting to disclose the most harmful pollution impacts, or only focus to disclose the required obligatory items. Given the financial and sustainability reports magnitude manual testing would not provide complete and proper coverage, therefore we utilized an automated and AI-assisted content analysis with natural language processing. In this new review method, the sustainable elements of the textual reports were automatically retrieved following the 5-stage model of Landrum & Ohsowski (2018). The study highlights the lack of true sustainability information content of reports and the potential discrepancies and connections between the financial and the sustainability reports. Findings concluded that sustainability disclosures at the reviewed companies from several aspects could be improved and quantified, traced back to the financial disclosures, and to be comparable to each other if they apply a similar review method.Graphic abstract

Highlights

The connection and the potential reconciliation between sustainability and financial reporting are getting more and more attention
A quite heavy debate started in April 2019 based on a speech from the International Accounting Standard Board (IASB) chairman Mr Hoogervorst and the most widely used Global Reporting Initiative (GRI) chief executive Mr Mohin regarding the role of sustainability and financial reporting
In September 2020, the European Commission recognized the importance of coordinating the development of EU standards with existing and emerging global initiatives (European Reporting Lab 2020), mandating the European Financial Reporting Advisory Group (EFRAG) to undertake preparatory work for possible EU non-financial reporting standards

Summary

Introduction

The connection and the potential reconciliation between sustainability and financial reporting are getting more and more attention. A quite heavy debate started in April 2019 based on a speech from the International Accounting Standard Board (IASB) chairman Mr Hoogervorst and the most widely used Global Reporting Initiative (GRI) chief executive Mr Mohin regarding the role of sustainability and financial reporting. Significant progress was made in July 2020 as the opposition between the GRI and the Sustainability Accounting Standards Board (SASB) eased, with the announcement of collaboration. Both institutions provide standards for sustainability reporting, but to fulfill different purposes: SASB focuses on sustainability-related risks on a company’s financial conditions the GRI deals with issues that are of primary importance to stakeholders (SASB 2020). The most recent regulatory results contain a stateof-the-art target sustainability architecture (EFRAG 2021)

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